FTC officials side with Tesla on debate over car dealerships

UPDATE: The National Association of Automobile Dealers Association has issued a statement in response to the FTC blog post.

“For consumers buying a new car today, the fierce competition between local dealers in a given market drives down prices both in and across brands – while if a factory owned all of its stores it could set prices and buyers would lose virtually all bargaining power And buying a car isn’t like buying a pair of shoes online. Cars require licensing to operate, insurance and financing to take home, and contain hazardous materials, so states are fully within their rights to protect consumers by standardizing the way cars are sold.”

“This very question has been raised across the country, as a still-young car manufacturer, Tesla, pursues a direct-to-consumer sales strategy that does not rely on local, independent dealers,” the post said.

“In this case and others, many state and local regulators have eliminated the direct purchasing option for consumers, by taking steps to protect existing middlemen from new competition. We believe this is bad policy for a number of reasons.”

The post doesn’t necessarily mean Tesla has the full support of the FTC.

The co-authors are Andy Gavil, director of the office of policy planning, Debbie Feinstein, director of the bureau of competition, and Marty Gaynor, director of the bureau of economics.

But the post ends with a disclaimer that says “the views expressed are their own, and do not necessarily reflect the opinion of the Commission or of any individual Commissioner.”

Still, their opinion could be influential in the overall debate about whether Tesla should be allowed to bypass the traditional car dealership system to sell its electric cars.

The officials note the original car dealership system was established to protect consumers from “the abusive practices by manufacturers,” but federal, state and local laws eventually expanded to protect independent car dealers.

“Instead of ‘protecting,’ these state laws became ‘protectionist,’ perpetuating one way of selling cars—the independent car dealer,” the FTC officials said. “Such blanket bans are an anomaly in the broader economy, where most manufacturers compete to respond to consumer needs by choosing from among direct sales to consumers, reliance on independent dealers, or some combination of the two.”

They conclude by saying “change is a critical dimension” of fostering competition that could benefit consumers.

“Such change can sometimes be difficult for established competitors that are used to operating in a particular way, but consumers can benefit from change that also challenges longstanding competitors,” they wrote.

“We hope lawmakers will recognize efforts by auto dealers and others to bar new sources of competition for what they are — expressions of a lack of confidence in the competitive process that can only make consumers worse off.”